When you apply for most personal loans or business loans, the main
factors taken into account are not just credit, but also income,
length & type of employment & amount requested. While each
business loan institution you apply with has the right to assign
different levels of importance to any of these, or any other characteristics,
most look at these factors. Generally, you will be applying at Non
Government Institutions. Since these are private institutions, outside
of basic factors like race, religion, sex, etc, each company will
set their own guidelines. There are 3 major credit reporting agencies
in the US, Equifax, Experian, & Transunion.
When you apply for a consumer or even a business loan, the credit
bureau that is used will often be based on what region of the country
you live in. If you live in the Eastern & Southeastern United
States, Equifax will often be used, Experian for the Midsouth and
West, and Transunion for the Midwest. Although all are full national
bureaus, each bureau tends to be strongest in those regions and
will have the most complete file.
All three bureaus are not mirrors of one another. There may be
both good or bad tradelines in one or two bureaus, that are not
reported in the others. Some companies that you are applying with
will use what’s called a “Tri-Merge”. In a Tri-Merge
report, the company you have applied with will see a combined file
so that every trade line will be seen. They will also see the credit
score you received on each bureau. If one of the scores at one bureau
is considerably lower than the score at the other two bureaus, this
may influence their decision.
The credit score, which may also be called “Fico Score”,
or “Beacon Score”, or “Empirica Score” is
a risk score assigned to you. Many companies consider a number of
primary and secondary factors about your bureau to determine if
your risk level is acceptable. for their standards, but the bureau
score is the single most important factor.
Since most companies you apply at will be private institutions,
it is at their discretion who will be approved for a loan. What
Company A decides is acceptable may not be acceptable to company
B. Other important bureau factors include Time in File, high credit,
number of Tradelines, number of recent inquiries, total credit card
balances, unsecured account balances as a percentage of limits,
and derogatory reportings. All of these affect that final credit
If you have been approved, great! If you were declined, get a copy
of your credit report to see what is on the report. The credit report
you receive will probably have a different format than the ones
used by companies you have applied at. It will be less technical,
will rely more on words than on numbers, and may not have a credit
Many large companies will “Auto Decision” your application,
meaning a computer will decide if you get the loan or not. Another
technique is for the computer to auto decline the applications that
are below an absolute low standard and auto approve those with score
and characteristics so high that the institution is comfortable
granting credit without a person even looking at your application.
This means you may be declined by a computer. The applications in
between are often sent to a credit person for review.
In many smaller companies, an individual will review every request.
Statistics prove that over time, as far as the overall default rate,
better decisions are made by the computer risk models. These computer
risk models are developed in-house by some large companies, or purchased
from outside vendors. Tens of thousands of real applications and
their performance over a period of years are assessed in order to
create these computer credit risk models and to assign risk levels
and scores. They are applied to new applications since prior performance
is the best indicator of future performance.
However, mistakes are made.
When a credit card issuer sets a cap on the amount of unsecured
revolving credit they are willing to have any one applicant have
(Credit Cards, Lines of Credit). If an applicant is above that threshold,
they will be declined. On credit reports, credit cards and lines
of credit will be listed on an account as an “R”, for
revolving. Many homeowners have an equity line of credit with a
high limit which unfortunately, the credit agencies may report as
an “R” and incorrectly lump these lines together with
credit cards and lines of credit when reporting your total unsecured
credit. This error may also be caused by a companies risk evaluation
models. This may cause you to incorrectly exceed their maximum and
be declined. The credit bureaus may also list this as unsecured
credit available, which may slightly lower your score more than
if they had correctly listed it as a secured line.
John Smith has 5 Credit Card for limits for $ 25,000
John also has a home equity line for $50,000
These two are lumped together and now you are shown as having $75,000
in unsecured credit, which some credit grantors may consider too